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Topic: "Mega Backdoor Roth" (Read 574 times)

Hi, I started thinking after hearing about the "Mega Backdoor Roth" as shared on the Mad Fientist blog. Got a few questions to confirm I understand correctly:

1) Basically I can contribute to my 401K after-tax dollars up to a certain amount (401K is with Vanguard!). Once I leave my company I can take those after tax dollars, minus any growth, and roll into my Roth IRA. Growth from after tax contributions get rolled into traditional IRA. Is this correct?

2) What is best way to find out if my plan allows "in-service withdrawals" (being able to roll over my post-tax contributions immediately into Roth IRA)?

3) Is there a waiting period (i.e. 5 years) to be able to access these post-tax 401K contributions in the Roth?

Hi, I started thinking after hearing about the "Mega Backdoor Roth" as shared on the Mad Fientist blog. Got a few questions to confirm I understand correctly:

1) Basically I can contribute to my 401K after-tax dollars up to a certain amount (401K is with Vanguard!). Once I leave my company I can take those after tax dollars, minus any growth, and roll into my Roth IRA. Growth from after tax contributions get rolled into traditional IRA. Is this correct?

Yes, that's what you would do if your plan offers after-tax contributions but not in-service withdrawals.

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2) What is best way to find out if my plan allows "in-service withdrawals" (being able to roll over my post-tax contributions immediately into Roth IRA)?

Check any plan documentation available to you first. Then try calling someone. This is a bit of a niche maneuver, and the customer service representative you talk to first may not be aware of it.

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3) Is there a waiting period (i.e. 5 years) to be able to access these post-tax 401K contributions in the Roth?

Not really. The 10% early withdrawal tax only applies to withdrawals within five years of conversion for money that you paid tax on at the time of conversion. If essentially all of your rollover is post-tax dollars (with minimal growth inside the after-tax 401(k), or growth directed to a traditional IRA), essentially none of the rollover will be subject to the 10% early withdrawal tax.

Not really. Once money is in a Roth IRA, you should avoid withdrawing the in-Roth growth until you're at a normal retirement age, but I've never really been able to come up with a legitimate scenario where one would need to dip into this money early and also be on track to not run out of money before a typical life expectancy.